Direct taxes: The European Commission formally requests Belgium to amend certain provisions on the taxation of dividends

The European Commission has formally requested Belgium to change its tax provisions related to dividends received from Belgian investment funds investing all of their assets in real estate ("real estate" SICAF). Belgium limits the exemption from withholding tax to dividends paid by Belgian "real estate" SICAF investing at least 60% of their assets in residential real estate situated on Belgian territory, which results in discriminatory treatment. The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in Article 258 of the Treaty on the Functioning of the EU (TFEU)). If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the Court of Justice of the European Union.

Under articles 2, 1°, of the Royal Decree dated April 10 th 1995 on Belgian "real estate" SICAF and article 106 §8 of the Royal Decree implementing the Belgian tax code dividends paid by Belgian "real estate" SICAF investing at least 60% of their assets in real estate situated in Belgium are exempt from withholding tax in the hands of resident shareholders, whereas dividends paid by their foreign counterparts are not.

The Commission considers this treatment discriminatory and amounting to an obstacle to the free movement of capital and the freedom to provide services as laid down in articles 43 and 49 of the TFEU and articles 36 and 40 of the EEA Agreement , since such a rule creates an incentive for Belgian residents to only invest in Belgian real estate investment funds. Moreover, the rule that Belgian investment funds investing in real estate have to invest at least 60% of their assets in real estate situated in Belgium in order to benefit from the exemption also constitutes a restriction to the free movement of capital and the freedom to provide services, as it dissuades Belgian investment funds from investing in real estate situated abroad.

The Commission's case reference number is 2008/4156.

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